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Michael Filloon, Split Rock (390 clicks)
Oil & gas, small-cap, research analyst, growth at reasonable price
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Whiting (WLL) has made some big changes recently, and it seems to be paying off. It sold some assets and plan to use the cash to ramp up its Bakken and Niobrara plays. It is improving its completion design, and using significantly more proppant. Its well results are improving and this could be just the beginning of an escalation in share price.

Whiting opened up the Bakken's Q2 with a big beat on both the top and bottom lines. This was the fourth consecutive quarter Whiting beat EPS estimates. It beat by $.12 on the top line, reporting an EPS of $1.02. Revenues came in at $663.3 million versus the Street's estimate of $617.16 million. Whiting announced a new production record, 4.8% better than Q1 of 2013. It was 15.7% better than Q2 of 2012. The production split is 87% liquids.

The biggest news comes from its sale of its Postle assets. This area produced 7560 Boe/d for Whiting. It received $837 million for the asset, and can increase production from the Bakken and Niobrara enough to cover this by increasing 2013 capex by just $300 million. More importantly, it has moved from EOR work to focus on the Bakken and Niobrara. I am bullish on both areas in 2013, as I believe well results are improving as well costs head lower. Downspacing in both plays could provide significant upside to share price. Kodiak (KOG) had four of its pad wells in the Polar Prospect come off confidential status. These wells seem to prove Kodiak is doing a great job of tightening up well spacing.

  • P WOOD 154-98-3-27-34-14H3, 1,860 bbl/d
  • P WOOD 154-98-3-27-34-15H3M, 915 bbl/d
  • P WOOD 154-98-3-27-34-15H, 2,085 bbl/d
  • P WOOD 154-98-3-27-34-14H, 1,824 bbl/d

I believe the second well was a test of the second bench, so I wouldn't really be concerned about the lower number. This well still needs to clean up as well. I do not have any figures on well design yet, but we continue to see good results even at tighter spacing.

Whiting's production grew 4.8% in Q2 from Q1. It posted record discretionary cash flows, up 42% for Q2 of 2012. Whiting is excited about its Redtail Prospect in Colorado. It has had some very good results. Well costs are low with plenty of opportunity to downspace and improve results. It just added a pad-capable rig. In October, another rig will arrive, increasing the total to three. Whiting plans a total of five rigs running in 2014. Its well results are getting better in both the Niobrara and Bakken. Its new completion design uses cemented liners, bigger fracs and increased volumes of sand. Its Missouri Breaks Prospect in Montana has seen a significant improvement, and this could continue to drive production through 2013. Whiting is expanding this plug and perf approach to all of its Bakken acreage. Costs are fairly close with this technique, at most 5% more.

More upside was seen in Whiting's Tarpon Prospect. Whiting completed three more wells in Westberg Field right next to some of its best wells to date in Twin Valley Field. Below I have listed the results from its Twin Valley wells completed in late 2011 and 2012.

Whiting's Twin Valley Field Results

WellLateral Ft.StagesWater Bbls.Proppant Lbs.30-Day IP Bo/d90-Day IP Bo/d180-Day IP Bo/d
20589941330308161993832136712601132
22360104171015165895720453299
22361115183040919272906817951289
Avg.104492328967187287312059491132

Its Westberg wells just came off of confidential status and produced quite well. These three wells look to be much like these Twin Valley wells.

WellLateral Ft.IP OilIP Mcf
223861297944568524
223871093244605528
22388997749565103

I don't place much credence in 24-hour IP rates, but the Westberg wells above produced much like the Twin Valley wells when I compare it using this data. The Twin Valley IP rates are listed below.

WellLateral Ft.IP OilIP Mcf
205899413481513163
223601041713943521
2236111518497111450

Whiting continues to downspace its Sanish Field. It has done little by the way of drilling the Three Forks, but has expanded into the D zone (deepest zone of the middle Bakken), and should have concrete results early in Q4.

Whiting's Redtail development is currently focused on the Niobrara A and B reservoirs. It believes the C is a viable target, and is not as excited about the Codell. EURs are modeled between 500 MBoe and 600 MBoe, with well costs of $5.5 million on average. Even at this early stage of development, the Niobrara is producing returns much like its well developed Bakken leasehold. Noble Energy (NBL) currently models its 9000 foot laterals in the Niobrara to EURs of 750 MBoe. Some of its wells have outperformed to 1000 MBoe. Operators in the Niobrara believe it is possible to drill 36 wells per section. Whiting is not as optimistic, but currently estimates 32 or 16 in the A and 16 in the B zones. Bonanza Creek (BCEI) has been one of the best Niobrara stories this year. It is currently testing 40 acre spacing. It is important to note that Whiting is increasing its sand volumes significantly. In its longer laterals, it now uses up to 7 million pounds of sand. If Whiting is now concentrating on shorter and wider fracs like EOG Resources (EOG), production will improve significantly. There is additional upside to the Niobrara as these wells take much less time to drill. On average, it takes half the time. Its three rig program would equate to six rigs running in the Bakken. Synergy (SYRG) is one of my favorites working this area. It is currently moving from a vertical operator to a horizontal. It is in the process of a significant production ramp. Synergy believes this is one of the best plays in the country, and I agree. The downspacing seen by Noble and other operators is just the beginning. Most are seeing a big improvement to longer laterals. While some are having good results from 9000 foot laterals, Whiting is still using 7500 foot as a top end length. Experienced operators are seeing huge EUR increases, and are doing this with very low well costs.

Differentials continue to improve, and Whiting is currently railing about 40% of its production out of the Bakken. If we look at the first six months of 2013 we see an overall increase in realized prices. On a Boe basis, we see year over year increase of about 7%. It improved from $70.15/Boe to $75.34. Realized crude pricing is the key in Q2. In 2012, Whiting's realized crude price was $78.57. Q2 this year was up 12% to $88.10. This had little to do with WTI pricing, as it was only up 1% over that same time frame. This was all differentials. WTI didn't start making its move until late June. It didn't eclipse $100/Bbl until July 3rd. NGL pricing improved about 1% year over year in Q2. Whiting's Q2 realized natural gas pricing was up 29% year over year. Over that same time frame, NYMEX natural gas per Mcf was up 86%.

In summary, this was a huge quarter from Whiting. It was the best one I have seen in quite some time. I believe we are going to start to see a change in the upcoming quarters, of what used to be an average operator with excellent acreage. I believe we are now beginning to see an excellent operator with excellent acreage. That is just my opinion, but when EOG Resources began focusing on shorter and wider fracs, it began beating estimates significantly. In the beginning of this growth, I believed that Gonzales County of the Eagle Ford was just that good. In reality, EOG took excellent acreage and made it the best in the country. The question is whether Whiting can do the same thing with its Sanish and Twin Valley Fields. Being in the early innings, it is impossible to know for sure. We continue to see improving realized resource pricing. WTI could hold at these levels, given the demand for refined products overseas. Even if it pulls back 10%, rates of return are still excellent. It is starting a significant ramp in production, as its pad development continues. Given its most recent results, Whiting looks to have upside in 2013.

Source: Bakken Update: Whiting's Outstanding Q3 Is Driven By A Better Completion Design

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